The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) have submitted proposals to the government regarding the regulation of cryptocurrency trading in India. SEBI proposed a collaborative effort among regulators to oversee cryptocurrency trading, while the RBI seeks a ban on stablecoins. SEBI’s proposition indicates a willingness to embrace private virtual assets, which is a departure from previous positions taken by India. The RBI views private digital currencies as a potential macroeconomic risk, leading them to advocate for a ban on stablecoins.
SEBI recommended that various regulators oversee cryptocurrency-related activities within their respective domains rather than having a single unified regulator for digital assets. It suggested that SEBI could monitor cryptocurrencies categorized as securities and issue licenses for equity market-related products. Additionally, the proposition recommended that the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) regulate virtual assets related to insurance and pensions. Grievances of investors trading in cryptocurrencies should be resolved under India’s Consumer Protection Act.
India has taken a tough stance on cryptocurrencies since 2018 when the RBI prohibited lenders and financial intermediaries from dealing with crypto users or exchanges. The Supreme Court later overturned this ruling. In 2021, the government prepared a bill that would have banned cryptocurrencies, but it has not been introduced yet. The country, during its presidency of the G20 in 2023, called for a global regulatory framework for cryptocurrencies. The RBI remains in favor of a ban on stablecoins due to concerns about macroeconomic risks associated with digital currencies.
RBI Deputy Governor T. Rabi Sankar highlighted concerns about stablecoins, particularly those linked to economies like the US and Europe, posing a risk to policy sovereignty. The RBI also expressed concerns about tax evasion and peer-to-peer decentralized activities related to cryptocurrencies that rely on voluntary compliance. It is worried about losing income from money creation, known as “seigniorage.” After the Supreme Court overturned its 2018 orders, the RBI urged strict compliance with regulations and excluded cryptocurrencies from India’s financial system. The government introduced a crypto tax in 2022, and all exchanges were required to register locally to facilitate transactions.
Overall, SEBI’s proposition for a collaborative effort among regulators to oversee cryptocurrency trading in India signals a willingness to embrace private virtual assets, while the RBI’s stance on stablecoins reflects concerns about potential macroeconomic risks associated with digital currencies. The differences between the two regulators highlight the ongoing debate in India about how to regulate cryptocurrencies and the related opportunities and challenges. The government panel tasked with formulating policy for the finance ministry will consider these proposals before making any decisions on the regulation of cryptocurrency trading in India.
